[Editor's Note: The following article was written by Ian Chase on behalf of Solve My Debt. They pride themselves on being the go-to-experts for high quality debt management. They also suggest that you take positive action today against your debt problems and get in touch with the team for expert help.]
When debt is piling up and bankruptcy seems inevitable many people give in to the stress and ignore their problems until a creditor forces bankruptcy upon them. The feeling that you'll never get out of debt can be overwhelming, but with a long-term debt management plan and the right techniques it is possible to slowly and gradually reverse the downward debt spiral and avoid personal insolvency and bankruptcy:
1. Compare Total Monthly Income to Current Financial Obligations
First you'll need to get a picture of just how bad your debt situation is by calculating how much income you're reliably bringing in every month and comparing it to the amount of money you're spending on recurring financial obligations (i.e. - debt repayments, rent/mortgage, insurance, electricity, transportation costs, food, etc.). You'll probably find the need to do some restructuring and budgeting just to make recovery a feasible possibility.
2. Track and Allocate Expenditure with a Comprehensive Budget
Your budget should be a constant work in progress, changing along with the dynamics of your life. To make next month's planned budget more accurate and effective it is best to track every cent of income and expenditure this month, so you'll have something to reference. At the end of the month create categories for miscellaneous expenses that you normally wouldn't add to your budget, as it is these unexpected and unrecorded purchases that usually push people over the spending limits of their budget. After a few months of budgeting you should no longer feel a sense of financial uncertainty because all of your wants and needs will be adequately planned for.
3. Create a Debt Calendar and Reschedule Problematic Payment Due Dates
Making payments is only half the battle in getting out of debt; if you want to avoid late fees and potential damage to your credit score you need to make payments on time. Unfortunately, sometimes your pay periods don't mesh with payment due dates, especially if you get paid monthly or every two weeks, which is why creating a debt calender will help you get sorted out. Look for the payment due dates that fall on days during “income droughts” when you won't be expecting any payments. In most cases you'll be able to reschedule payment due dates so that they fall near pay periods by simply calling the creditor and asking.
4. Consolidate Debts Wherever Possible
Debt consolidation is the process of signing over some or all of your debts to a single lender who would then charge you a centralized monthly payment on one date for all of your monthly repayments. This not only reduces the stress of dealing with multiple creditors it also puts your repayment obligations together at one time of the month and helps you minimize the possibility of having several offenses on your credit report.
5. Devote A Bank Account To Your Debt Payments
Open a checking or savings account that will be designated to hold all of the money used for your debt repayments. Your primary concern every month second only to living provisions should be to ensure that the account is loaded with enough funds to cover your upcoming payment obligations. This not only helps with discipline it also makes accounting easier.
6. Examine Financing Options
If repaying all of your debts with your current income doesn't seem practical you may want to consider financing options that could give you the assistance needed to repay secured or otherwise urgent debts. Although this practice would be causing you to create a new debt, and you would probably be stuck with higher interest rates, it would get the current creditors off of your back and allow you to postpone or avoid personal insolvency and bankruptcy.
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